If Hell Comes: Preparing for UK's EU Departure

Never underestimate the human potential for acting stupidly: The UK's ruling Conservative Party has long been playing fire with its Eurosceptic stylings. By bashing the EU and its alleged overregulation at every turn, their intent is to use possible UK departure from the EU as a leverage point to gain more exceptions for its financial services industry. The Tories now plan to hold a referendum on the matter of EU membership if reelected out of electoral self-interest. Now, imagine if UK voters are sufficiently peeved at Europe to vote for leaving it. There's no saying it couldn't happen, but the effects of the UK being branded a "foreign" financial system would mean curtains for its status as a gateway to the EU.

Already, American banks are preparing their doomsday scenarios by moving more activities to Ireland--a classic low tax destination within the EU that is unlikely to leave the union:

[US banks] said their plans were in most cases still at very early stages. But they said the US banks had
started preparing for the eurozone’s impending banking union that
threatens to isolate Britain and, ultimately, for a possible UK exit
from the EU. “I’m frankly looking at moving some activities to Ireland,” said one
senior UK-based manager at a Wall Street bank. “I think the Irish
central bank and government would welcome this. It is not so much
Brexit, more about legal entity optimisation.”

Most US and Asian banks have chosen to base their main European
operations in the UK, giving them an automatic passport to carry out
their services across all 28 countries in the EU. But senior US banking executives said the UK was
unlikely to be granted the same “passporting” rights if it left the EU –
the so-called “Brexit” scenario.

Prime Minister David Cameron has
promised to hold a referendum on a renegotiated EU membership if his Conservative party wins next May’s election. Executives at American banks in Europe are reluctant to speak
publicly about the issue for fear of upsetting the UK regulators. One
said: “I don’t think people are making enough of it – a lot of
passported activities that cannot take place in London will not exist
here any more.”

London, or more specifically the City of London, is the world's financial capital. New York isn't; not by a long shot. These yahoos are running the risk of turning it into another offshore economy like, say, the Cayman Islands. It may be a particularly big offshore economy, but it will become smaller as the transaction costs of doing business in a non-EU country increase. To its credit, Ireland is seeing the potential of siphoning away at least some support activities like backroom operations even if the UK ultimately stays as the baseline scenario still suggests:

The
UK hosts more than 250 foreign banks and last year it generated a
financial services trade surplus of $71bn, about a third of which came
from trade with the EU, according to TheCityUK, a financial lobby group.

Most observers assume that if the UK did leave the EU then Frankfurt
or Paris would be the most likely alternative for US banks looking to
shift parts of their European activities out of the UK. But Ireland’s attractions for US banks include its low corporate tax
rate, English speaking population, English-style legal system and
eurozone membership. “Dublin is selling itself very hard at the moment,”
said one banker.

Leaving the EU would be an unthinkably stupid thing for the UK to do, but hey, WWI looked pretty unlikely until about a hundred years ago, didn't it?